Governors are preparing their budgets for next year and a number of them (those in Indiana, Iowa, and Maine, for example) are considering major tax cuts.
They ought to take heed of what’s going on in Kansas.
Governor Sam Brownback, who last year pushed through a massive income tax cut that he claimed would provide a “shot of adrenaline” to the state economy, is now calling for tax increases in the face of a $700 million budget shortfall.
The governor won’t say what taxes he’ll propose until he releases his budget in January, but he’ll likely propose restoring at least part of a sales tax increase that lawmakers let expire last year.
Governor Brownback’s income tax cut disproportionately helps the wealthy, while sales taxes fall hardest on lower-income people. So, paying for an income tax cut with a sales tax hike boils down to requiring typical Kansans to pay part of the tax bills of the state’s wealthiest residents.
The governor justifies the tax increase as a short-term measure, only necessary in the next two years, after which his tax cuts will take hold and produce an economic boom.
That’s not likely. States are required to balance their budgets, so when they cut taxes they have to make up for the lost revenue by cutting spending on services or by raising revenue in some other way. Those actions are likely to reduce demand in the state just as much as the tax cut may stimulate demand. It’s a zero-sum game.
Governor Brownback’s massive tax cut is particularly unlikely to produce the promised economic boom because its centerpiece — eliminating taxes on certain forms of business income — is very poorly targeted to businesses that will create new jobs.